Articles, Alerts & Perspectives

PIOGA Press

Sources for below article: Pennsylvania Oil & Gas Landowner Alliance (POGLA) Post – November 6, 2022, Senator Yaw Press Release dated 11/7/22, and ‘Pennsylvania General Assembly Enacts Senate Bill to Amend Oil and Gas Lease Act’ alert by Babst Calland published on 11.8.22

(By Chelsea Heinz and Devlin Carey)

Legislation aimed at ensuring landowners are afforded a clear and distinct assessment of royalties paid to them through lease agreements with oil and natural gas operators has been signed by Governor Tom Wolf.

On November 3, 2022, the Pennsylvania General Assembly enacted Senate Bill 806, which amends the Oil and Gas Lease Act of 1979 (P.L. 183, No. 60). The new act seeks to increase transparency around the payment of royalties from oil and natural gas operators to landowners pursuant to their lease agreements.

Senator Gene Yaw (R-23) believes the act will address recent concerns among landowners regarding the way in which royalties are being calculated, described and ultimately paid.

“Concerns have been expressed by land and mineral owners for some time now centered on the lack of transparency that can come with deductions from their royalty payments,” Yaw said. “In some cases, general deductions with little to no description are subtracted from landowner’s checks, leaving them with a fraction of what was promised. “My legislation would not impact lease agreements, but it would require entities making payments to landowners to provide more description, clarity and uniformity on their royalty check statements, something I’ve heard a great deal about from leaseholders across our region,” Yaw said. “This proposal is designed to help ensure all parties feel their lease agreements are executed as intended, and it will help mitigate concerns that have developed in recent years.”

Senate Bill 806, now Act 153 of 2022, was supported by various agencies and organizations, including the Pennsylvania Farm Bureau, the Pennsylvania Oil and Gas Landowner Alliance, the Marcellus Shale Coalition, Bounty Minerals, the Pennsylvania Independent Oil & …

PIOGA Press

(By Gary Steinbauer, Gina Falaschi and Christina Puhnaty)

On October 14, 2022, the U.S. Environmental Protection Agency published a proposed rule that would require all emission sources subject to the Agency’s major New Source Review (NSR) permitting program to consider fugitive emissions when evaluating whether a new source or physical or operational change triggers the stringent major NSR permitting requirements. 87 Fed. Reg. 62,322 (Oct. 14, 2022) (Proposed Rule). The treatment of fugitive emissions, i.e., those “which could not reasonably pass through a stack, chimney, vent, or other functionally equivalent opening,” under the major NSR permitting program has been controversial for decades. While EPA predicts that the Proposed Rule will have limited impact on the regulatory community, EPA and state air permitting authorities may now place even greater pressure on industry to predict and quantify “fugitive emissions” from physical or operational changes to their facilities.

The major NSR permitting program is the Clean Air Act’s permit program that applies to the construction of new “major sources” and “major modifications” (i.e., qualifying physical or operational changes) to existing “major sources.” Applicability determinations under the major NSR program often rely heavily on predicted emissions from a new source or planned physical or operational changes to an existing source. When the new or existing source is located in an area that is in attainment with the Clean Air Act’s national ambient air quality standards (NAAQS), the major NSR program’s Prevention of Significant Deterioration (PSD) requirements apply. More stringent requirements, known as non-attainment NSR requirements, apply when the source will be or is located in an area that is not meeting one or more of the NAAQS. …

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…

Smart Business

(By Sue Ostrowski featuring Chris Farmakis and Mike Matesic)

Finding the right match between investors and businesses needing capital can be hit or miss. How can investors reduce the challenges they face in identifying potential investment opportunities, and how can growing businesses attract the right partner?

“One of the most common barriers to bringing companies and investors together is mismatched expectations, where investors think a company is more mature, and the company is presenting itself that way, but after the investment, the investors find out the company is not as mature as they thought,” says Mike Matesic, President and CEO of Idea Foundry, which has helped launch more than 250 companies that have generated more than $1 billion in direct economic impact to the region over the last 20 years. Helping companies attract needed capital has been an essential part of Idea Foundry’s services and that required getting close to investors to understand their needs.

“The other challenge is that investors don’t like to immediately say ‘no’,” says Chris Farmakis, shareholder and Board Chair at law firm Babst Calland.

“It’s very dangerous for a business to think it’s getting funding and start spending before they have it,” says Farmakis. “It is very difficult for a company to recover when it finds out its promised funding fell through.”

An experienced funding program, however, can screen companies, ensure transparent communication, and bring companies together with a pool of investors.

Smart Business spoke with Farmakis and Matesic about how a third-party funding program can help both sides of the investment equation make the most of the deal.

What are the advantages of working with experienced organizations to find the right partner on both sides? …

Pittsburgh Business Times

In a new partnership between Pittsburgh-based global investor Idea Foundry and law firm Babst Calland, IF Ventures held its inaugural angel investment opportunities event recently. IF Ventures aims to fill a critical investment gap in the Pittsburgh region.

The partnership between the two firms is a natural fit as they have worked together for 15 years, starting and growing new companies, President and CEO of Idea Foundry Mike Matesic told the Pittsburgh Business Times. This new initiative capitalizes on the strengths of both firms to attract investors to raise capital to advance high potential, emerging growth stage companies from various types of industries throughout the Pittsburgh region.

“Idea Foundry is focusing on sourcing the deals, doing the initial vetting, and bringing them forward,” Matesic said. “Chris Farmakis and his team at Babst Calland are working with the investors to help attract the new investors to the program … Chris’ business skills coupled with his legal experience will kick in when we start to put the deals together.”

The initiative uses 20 years of lessons learned — from Idea Foundry’s helping to launch more than 250 companies — to reduce the challenges that commonly occur when bringing companies together, Matesic said. The most common challenge is the mismatched expectations that occur when a company presents itself as being more mature than it actually is, causing a potential investor to realize achieving success will take more money than initially thought.

Babst Calland Shareholder and Board Chairman Chris Farmakis explained how IF Ventures does the “prework” of vetting and evaluating companies for those looking to invest — something, he said can be a “risky and speculative venture.”

“IF Ventures is a group of investors who are serial investors in the region, business owners and just smart people who are involved and engaged in the community,” Farmakis said. …

Legal Intelligencer

(by Max Junker and Anna Jewart)

Municipalities face many restrictions on how they may use real property, and Pennsylvania law places additional statutory restrictions on a municipality’s conveyance of property which has been used as a “public facility.”  The Donated or Dedicated Property Act, 53 P.S. §§3381-3386 (DDPA), states that “[a]ll lands or buildings… donated to a political subdivision for use as a public facility, or dedicated to the public use or offered for dedication to such use… shall be deemed to be held by such political subdivision, as trustee, for the benefit of the public with full legal title in the said trustee.”  “Lands” include all real estate, whether improved or unimproved, and a “public facility” includes, without limitation “any park, theater, open air theater, square, museum, library, concert hall, recreation facility or other public use.”  Any such lands or buildings are required to be used only for the purpose or purposes for which they were originally donated or dedicated, unless modified by court order.

Consequently, a municipality cannot simply sell or change the use of real property donated for or dedicated to use by the public.  This concept may seem familiar to the lay person and land use practitioner alike because, in essence, the DDPA codifies the common law of the “public trust doctrine” which requires that public property dedicated to public use be held by the municipality, as a trustee, for the benefit of the community.

However, the DDPA allows the municipality to dispose of public trust property in certain specific circumstances if approved by the court.  Specifically, under Section 4 of the DDPA, a municipality may apply to the orphan’s court for certain enumerated relief if, in the opinion of the municipality, the continuation of the original use of the property held in trust as a public facility is no longer practicable or possible and has ceased to serve the public interest.  …

PIOGA Press

(By Brianne Kurdock and Keith Coyle)

On August 24, 2022, the Pipeline and Hazardous Materials Safety Administration (PHMSA) published a new final rule for onshore gas transmission pipelines (the Rule).  The Rule marks the completion of a three-phase rulemaking process, commonly referred to as the Gas Mega Rule, that began more than a decade ago.  The Rule focuses mainly on transmission pipelines and amends or adds various provisions to 49 C.F.R. Part 192.  The Rule will become effective on May 24, 2023.  There are six key areas that owners and operators of gas transmission pipelines should be aware of:

Definitions and Standards Incorporated by Reference

PHMSA added new definitions for terms referenced in the regulations, including close interval survey, distribution center, dry gas or dry natural gas, hard spot, in-line inspection (ILI), in-line inspection tool or instrumented internal inspection device, and wrinkle bend. The definition of transmission pipelines was revised to include a “connected series” of pipelines to clarify that transmission pipeline can be downstream of other transmission pipelines, and to allow operators to voluntarily designate their pipelines as transmission lines.

Management of Change

Operators of all onshore gas transmission pipelines must now evaluate and mitigate any significant changes that pose a risk to safety or the environment through a management of change process.  The process must include the reasons for the change, the authority for approving changes, an analysis of the implications, the acquisition of required work permits, and evidence documenting communication of the change to affected parties, time limitations, and the qualification of staff.    For pipeline segments not covered by Subpart O, operators must implement this management of change process by February 26, 2024. …

The Wildcatter

(By Nikolas Tysiak)

Welcome back to the real world! Now that summer is over, and Russian gas is being abandoned by many around the world, the oil and gas industry, and particularly the operators and land professionals in the Appalachian Basin, find themselves with more to do than ever before. There was not a lot of activity over the summer, but a few interesting developments arose.

SWN Production Company v. Kellam, 875 S.E.2d 216 (W. Va. 2022). Certified question to W. Va. Supreme Court from federal district court for the Northern District of West Virginia. Primarily, the Supreme Court was asked whether the 2006 case Estate of Tawney v. Columbia Natural Resources remained good law, and, if so, how to apply the requirements regarding deduction and calculation of royalties contained in that lease. After a lengthy discussion of the history behind royalty litigation in West Virginia and comparing the circumstances of Tawney to Leggett v. EQT Production Co., 239 W. Va. 264 (2017), the Court concluded that Tawney remains good law and is applicable to contractually created royalty provisions, while Leggett applies to statutorily created royalties.

Senterra Limited v. Winland, 2022-Ohio-2521. Marketable Title Act case. In a unique twist, the surface owner attempted to utilize the Duhig rule (a Texas case regarding repeated, identical reservations of oil and gas interests) to indicate that a ¼ oil and gas reservation was void at its inception, and therefore should be vested with the surface owners. The court disagreed, pointing to the unbroken chain of title of the severed mineral owners effectively preserving the reserved oil and gas interest. The court further found that reliance upon Duhig would not resolve the issue in favor of the surface owner in any case and found in favor of the severed mineral owner. …

Legal Intelligencer

(by Gina Falaschi and Christina Puhnaty)

The Pennsylvania Environmental Quality Board (EQB) will soon publish amendments to the Department of Environmental Protection’s (PADEP) regulations in 25 Pa. Code Chapters 121 and 129 for all major stationary sources of nitrogen oxides (NOx) or volatile organic compound (VOC) emissions, commonly known as the RACT III rule.  The rule would require major sources of either or both of these air pollutants in existence on or before August 3, 2018 to meet “reasonably available control technology” (RACT) emission limits and requirements by January 1, 2023.

These regulations are being promulgated to address Federal Clean Air Act (CAA) RACT requirements to meet the 2015 ozone National Ambient Air Quality Standards (NAAQS) in the Commonwealth.  The CAA requires a reevaluation of RACT when new ozone NAAQS are promulgated.  RACT is required in nonattainment areas, including the Ozone Transport Region which includes Pennsylvania.  The RACT III rulemaking establishes presumptive RACT requirements and emission limits for specific source categories of affected facilities.  The RACT III rulemaking also imposes additional requirements for all major sources of NOx and/or VOCs, not just those subject to the presumptive RACT requirements and limitations.

RACT III applies to all major sources of VOCs and NOx.  Because the Commonwealth is in the Northeast Ozone Transport Region, the major source threshold is 50 tons per year of VOCs and 100 tons per year of NOx.  PADEP estimates that 425 Title V facility owners and operators will be subject to the final rule.  Affected source categories include combustion units; municipal solid waste landfills; municipal waste combustors; process heaters; turbines; stationary internal combustion engines; Portland cement kilns; glass melting furnaces; lime kilns; direct-fired heaters, furnaces or ovens; …

Smart Business

(By Sue Ostrowski featuring Matthew Moses)

Labor and supply shortages, combined with rising interest rates, have many owners reconsidering the timeline for their construction projects — and in some cases, they are deciding not to proceed.

“Materials that used to be available in the normal course of business — concrete, steel, aggregate, light fixtures, lumber — that go into construction projects are now not as readily available,” says Matthew Moses, attorney at Babst Calland. “With interruptions in foreign trade, domestic supplies and transportation, things that used to be viewed as completely dependable now may not be available as needed. And the construction labor supply is smaller than it used to be before COVID, in both in the trades and in unskilled labor.”

Smart Business spoke with Moses about what to consider before deciding when — and if — to move forward with a construction project.

How are rising interest rates impacting construction?

If owners have their own funds to spend on a project, that’s great. But if they need financing, the cost of borrowing has increased and is widely expected to continue to rise. That could have a significant impact on the cost of a project, as a 1.5 percent interest rate increase on a $5 million project could result in a six-figure cost increase.

There is some pressure to borrow now, before interest rates rise further. Ask your lender how long it can commit to a rate lock for a particular project. That has typically been a few months but is changing with interest rate volatility. And while that was not previously a major problem, it can be if the project is contingent on other actions that push out the closing date on the loan. …

Babst Calland announced that Attorney Sloane Wildman has joined the firm’s Washington, D.C. office as a shareholder and member of its Environmental practice group.  

Sloane Wildman’s practice involves CERCLA and RCRA site remediation and counseling clients in all aspects of environmental law and regulation, including RCRA, CERCLA/EPCRA release reporting, Safe Drinking Water Act, TSCA, FIFRA, green marketing, the Clean Water Act and the Clean Air Act. She represents clients in administrative, civil judicial and criminal enforcement cases. Her wide-ranging RCRA experience includes counseling, defense of enforcement actions and permitting and encompasses all aspects of federal and state hazardous waste regulation, including solid and hazardous waste identification, generation, transportation, treatment, storage, disposal, closure and corrective action matters.

Ms. Wildman earned her J.D. from the University of Virginia School of Law and received her undergraduate degree from Dartmouth College.

Ms. Wildman is admitted to practice in the District of Columbia and California (inactive) and before the U.S. District Courts for the Eastern and Southern Districts of California. She is a member of the District of Columbia Bar Association’s Environment, Energy and Natural Resources Section and the American Bar Association’s Natural Resources, Energy and Natural Resources Section.

In his testimony on September 20, 2022 at the Pennsylvania House Environmental Resources and Energy Committee public hearing regarding “Wellhead to Stovetop – Conveying Energy in PA,” Babst Calland Attorney Keith Coyle, chair of the Marcellus Shale Coalition’s Pipeline Safety Workgroup, discussed the role and contribution of natural gas in the energy sector, and the importance of pipelines as a means of transporting natural gas from the wellhead to consumers.  He urged the Committee to recognize the importance of the natural gas industry and offered thoughts on the policies that should be considered in securing Pennsylvania’s energy future.

He explained, “Policies that impose unnecessary barriers on natural gas production or that prohibit the installation of pipeline infrastructure will create an energy system that is far less secure, particularly in the short term. The basic needs of everyday Americans cannot be met if one-third of the country’s primary energy production is unavailable or cannot be safely and reliably delivered to consumers.  Nor can the needs of the Commonwealth’s citizens be met without the natural gas that heats its homes and runs its power plants. As the recent developments in Europe show, policies that fail to account for the energy needs of a modern society are not progressive and often cause the greatest harm to those who are the most vulnerable.”

To view the live stream video of the House Environmental Resources & Energy Committee public hearing regarding “Wellhead to Stovetop – Conveying Energy in PA,” click here.